final transcript

Transcription

final transcript - The Execution Engine For Business Communications

FINAL TRANSCRIPT
DATA Group Ltd.
Third Quarter Results
Event Date/Time: November 6, 2014 — 11:00 a.m. E.T.
Length: 25 minutes
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript
is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or
liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne
contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou
découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
1
FINAL TRANSCRIPT
November 6, 2014 — 11:00 a.m. E.T.
DATA Group Ltd. Third Quarter Results
CORPORATE PARTICIPANTS
Michael Suksi
DATA Group Ltd. — President and Chief Executive Officer
Paul O’Shea
DATA Group Ltd. — Chief Financial Officer
CONFERENCE CALL PARTICIPANTS
Kevin Tracey
Oberon Asset Management — Analyst
Robert Tattersall
Private Investor
Andy Krystal
Royal Capital Management — Analyst
Rob Borda
Rob Borda Consulting — Analyst
Romeo D’Angela
Novaden — Analyst
2
FINAL TRANSCRIPT
November 6, 2014 — 11:00 a.m. E.T.
PRESENTATION
Operator
Good morning. My name is Mike , and I will be your conference Operator today. At this
time, I would like to welcome everyone to the DATA Group Third Quarter Results Conference Call.
All lines have been placed on mute to prevent any background noise. After the speakers’
remarks, there will be a question-and-answer session. If you would like to ask a question during this
time, press *, then the number 1 on your telephone keypad. If you would like to withdraw your
question, press the # key.
I will now turn the call over to Michael Suksi, President and CEO of the DATA Group. You
may begin your conference.
Michael Suksi — President and Chief Executive Officer, DATA Group Ltd.
Thanks, Mike, and good morning, everyone. Thank you for joining us today to review DATA
Group’s financial results for our third quarter of 2014. Paul O’Shea, our CFO, is also with me and will
be participating in our call.
Before we begin, I’ll remind you that our remarks and our answers to your questions today
may contain forward-looking information. This information by its nature is subject to risk and
uncertainties that may cause actual events or results to differ materially from any conclusion,
forecast, or projection contained in our remarks or answers.
3
FINAL TRANSCRIPT
November 6, 2014 — 11:00 a.m. E.T.
Certain material factors or assumptions were applied in drawing the conclusions,
forecasts, or projections included in our remarks and answers, and additional information about the
applicable risks factors and assumptions are contained in the DATA Group’s annual and quarterly
continuous disclosure filings available on SEDAR.
Also, in today’s conference call all references to the DATA Group will mean its various
business divisions and affiliated entities.
We continue to make progress on our Transformation Plan and remain focused on
creating long-term enterprise value appreciation for our shareholders.
In the third quarter of 2014, we were encouraged by positive results, as we were able to
increase revenue by 5.4 percent and adjusted EBITDA by 41 percent relative to the same period in
2013.
I talk about a Transformation Plan in every one of our quarter calls, so I will briefly
elaborate on why a Transformation Plan is important and required.
Our industry has seen wholesale changes over the last number of years, mostly due to
rapid technological advances. The competitive environment has become ever-more challenging as
our industry transforms to more digital forms of communication and adapts to new clients’
demands for blended print and digital solutions.
4
FINAL TRANSCRIPT
November 6, 2014 — 11:00 a.m. E.T.
These factors adversely impacted our financial results for 2013 and for the first half of
2014. The important point I want to make is that DATA Group has responded with a
Transformational Plan that establishes clear goals, all of which aim to enhance shareholder value.
Our Transformational Plan is showing results in the three key areas that we have targeted,
which are cost reduction, debt reduction, and revenue stabilization. So I’ll summarize those now,
first starting with cost reduction.
In October, we announced plans for the consolidation of four existing manufacturing
locations in Western Canada into one new modern print and marketing communications centre,
which will be located in Calgary, Alberta. This will happen in early 2015, and as such will be part of
our 2015 savings. This announcement’s had no impact on our Q3 results.
We anticipate annual savings of 2.5 million to 3.0 million as a result of this consolidation,
with associated restructuring charges in the first quarter of 2015 of 2 million to $2.2 million.
In addition, we completed several management changes in the third quarter, which have
strengthened our operational management team and will positively contribute to our cost-savings
program. When we started the restructuring processes—the restructuring process, excuse me—we
had a target to take out 35 percent of our manufacturing floor space and 20 percent of our
headcount at all levels. We are well advanced in achieving our targets.
Including the announcements made in October, we will have reducing our manufacturing
floor space by 23 percent, so we’re about two-thirds to our goal, and our headcount by 13 percent,
5
FINAL TRANSCRIPT
November 6, 2014 — 11:00 a.m. E.T.
again, about two-thirds of the way to our goal. While doing this we have also successfully sublet
three of the exited facilities in which we had ongoing lease commitments.
Turning to debt reduction. We have reduced our long-term indebtedness by $10 million
since the beginning of 2013, including a $2 million reduction in the third quarter of 2014. And it’s
our intention to further reduce debt going forward.
We commenced a normal course issuer bid for the purchase of our outstanding 6 percent
converted unsecured subordinated debentures, which we refer to as 6 percent convertible
debentures, due June 30, 2013. As at September 30, 2014, $200,000 in principal amount of the 6
percent convertible debentures have been purchased under this NCIB.
Turning to revenue stabilization. Our intent in 2014 is to stabilize our revenue and then
position ourselves for longer-term revenue growth.
Our plan to achieve this goal is based on four key elements: one, adding new sales talent;
two, winning market share in our traditional print business; three, investing in the key growth areas
we have identified, which are labels, marketing communications, and digital communications; and
four, bundling our new digital services with our traditional print offerings.
Our increased revenue in the third quarter indicates progress towards this goal,
highlighted in particular by strong new business development results. Year to date, revenue has
materially stabilized relative to 2013, and new business development results have improved by
approximately 30 percent.
6
FINAL TRANSCRIPT
November 6, 2014 — 11:00 a.m. E.T.
The significant changes we have made to our management and sales teams in the past
year have given us an aggressive focus on new business development and the talent to lead our
Transformational Plan.
During the third quarter, we continued to make a number of personnel changes to
strengthen our sales team, highlighted in particular by new sales leadership in Quebec, and to make
prudent investments to expand our capabilities in the growth areas that we’ve targeted. For
example, the new Calgary facility we recently announced will provide more effective services
offerings to clients in Western Canada, including a wide range of document management and
marketing communication services.
Also during the third quarter we completed installation of new equipment for specialty
label production and point-of-sale, or lottery roll production, and we made encouraging progress on
a number of new business sales opportunities in the retail, financial services, and transportation
markets.
I’ll now turn it over to Paul to go over the specific financial results for the third quarter.
Paul O’Shea — Chief Financial Officer, DATA Group Ltd.
Thanks, Michael. For the quarter ended September 30, 2014, DATA Group recorded
revenues of $78.1 million, an increase of $4 million, or 5.4 percent compared with the same period
in 2013.
7
FINAL TRANSCRIPT
November 6, 2014 — 11:00 a.m. E.T.
The increase before intersegment revenues was the result of a $3.4 million increase in the
DATA East and West segment and a $700,000 increase in the Multiple Pakfold segment.
For the nine months ended September 30, 2014, DATA Group recorded revenues of 232.8
million, a decrease of $2 million, or 9 percent—or 0.9 percent compared with the same period in
2013. The decrease before intersegment revenues was the result of a $3.2 million decrease in the
DATA East and West segment and was partially offset by a 1.4 million increase in our Multiple
Pakfold segment.
The increase in revenues for the three months ended September 30, 2014, in the DATA
East and West segment was primarily due to the increase in sales to existing customers,
improvement in product mix, and price increases passed through to customers for increased
material costs.
Revenues in the DATA East and West segment for the nine months ended September 30,
2014, decreased from the same period in the prior year and mostly in the first half of 2014. The
decrease was primarily due to orders from existing customers for print-related products and
services which did not repeat in 2014, aggressive pricing by our competitors supplying similar
products and services, and a change in product mix.
The segment continued to experience gains from new business, which partially offset
declines in revenues from existing customers, technological change, and competitive activity.
8
FINAL TRANSCRIPT
November 6, 2014 — 11:00 a.m. E.T.
The increase for revenues for the three months and nine months ended September 30,
2014, in the Multiple Pakfold segment was attributable to new business which arose as a result of
the bankruptcy of a competitor.
Selling, general and administrative expenses, excluding the amortization of intangible
assets, for the quarter ended September 30, 2014, decreased $400,000 to 14.3 million compared to
14.7 million in the same period in 2013. As a percentage of revenues, these costs were 18.3 percent
for the quarter compared to 19.8 percent in 2013.
SG&A expenses, excluding amortization of intangible assets, for the nine months ended
September 30 decreased 2.3 million to 43.4 million compared to 45.7 million for the same period in
2013. As a percentage of revenues, these costs were 18.6 percent of revenues for the nine months
compared to 19.4 percent of revenues for the same period in 2013.
The decrease in SG&A expenses for the three and nine months ended September 30, 2014,
was attributable to cost-saving initiatives implemented in 2013. For the three and nine months
ended September 30, 2014, DATA Group incurred restructuring expenses related to headcount
reductions of $300,000 and $2 million, respectively, as part of its ongoing restructuring initiatives.
Turning now to adjusted EBITDA. Adjusted EBITDA for the quarter was $6.2 million, or 7.9
percent of revenues.
9
FINAL TRANSCRIPT
November 6, 2014 — 11:00 a.m. E.T.
Adjusted EBITDA for the quarter ended September 30, 2014, increased 1.8 million, or 40.9
percent for the same period in the prior year, and adjusted EBITDA margin for the quarter as a
percentage of revenues increased from 5.9 percent in 2013 to 7.9 percent in 2014.
Adjusted EBITDA for the nine months ended September 30 was $16.3 million, or 7.0
percent of revenues. Adjusted EBITDA for the nine months ended September 30, 2014, decreased
1.2 million, or 7.1 percent from the same period in the prior year, and the adjusted EBITDA margin
for the nine-month period as a percentage of revenues decreased from 7.5 percent in 2013 to 7.0
percent for the same period in 2014.
Net income for the three and nine months ended September 30 was 1.8 million and 2.9
million, respectively, compared to a net loss of 20.2 million and 23 million, respectively, for the
same periods in 2013. The increase in comparable profitability for the three and nine months was
due to cost savings realized as a result of prior restructuring initiatives that led to a decline in SG&A
expenses, a reduction in restructuring expenses, amortization of intangibles and current income tax
expense for the third quarter and first nine months of 2014.
The increase in comparable profitability for the three and nine months ended September
30, 2014, was also due to the absence of any goodwill impairment charges during 2014. The
increase in comparable profitability for the three months ended September 30, 2014, was due to
increase in sales to existing customers, improvement in product mix, and price increases passed
through to customers for material costs.
10
FINAL TRANSCRIPT
November 6, 2014 — 11:00 a.m. E.T.
I’ll now turn it back to Michael for some closing remarks.
Michael Suksi
Thanks very much, Paul. Well, we are certainly encouraged by our third quarter results. All
elements of our Transformational Plan showed positive trends.
At the same time, we know we have more work to do on our Transformational Plan in
order to consistently grow our business, and you can expect us to continue to take actions to
support our plan. We will continue to do this with a sense of urgency, while also being mindful of
maintaining the operational business stability that is a precondition to maintaining our valued
customer relationships.
I’d like to thank you again for joining us today, and I turn it back to Michael to open it up
for any questions.
Q&A
Operator
At this time, I would like to remind everyone in order to ask a question, press *, 1 on your
telephone keypad. We will pause for a few moments to compile the Q&A roster.
Your first question is from Kevin Tracey with Oberon Asset Management.
Michael Suksi
Good morning, Kevin.
11
FINAL TRANSCRIPT
November 6, 2014 — 11:00 a.m. E.T.
Kevin Tracey — Oberon Asset Management
Hi. Thanks for taking my questions. It sounds like your business development efforts, I
guess, were successful and then you won a number of new customers in the quarter. And I’m
curious in which—which products did you sell to these new customers? Where they just winning
outsourced printing bids? Or were there some sales of your new marketing services that should
show good growth in the future?
Michael Suksi
Yeah. It’s a bit of both. First of all, we refer to our, I’ll call it, flagship solution which
bundles all of our solutions together and offers that to a client in a single-source relationship. We
refer to that as managed business communication services, and some of the wins were in that
space.
In addition that, we also had some wins in the label category and the marketing print
category and in the document process management category. So broadly I would say that, as I
mentioned in my remarks, the wins that we saw were in the areas that we have targeted that we
see as our strategic growth areas.
Kevin Tracey
Okay. Good. And then last year on your conference calls you talked about losing some
market share in the first half of 2013, and that a lot of the contracts that you’ve lost were renewed
on an annual basis; that would represent kind of a headwind to growth, I guess, through the first
12
FINAL TRANSCRIPT
November 6, 2014 — 11:00 a.m. E.T.
half of 2014. And now we’ve kind of lapped those contracts it would seem, and here we are in the
third quarter and growth has very much picked up. So should we see good growth going forward on
a year-over-year basis and the quarters ahead now that it looks like you won back some of that
market share?
Michael Suksi
Mm-hmm. Well, we’re not going to give absolute forward-looking statements, but what
you summarized about what we’ve said in previous calls about that business that we lost is
accurate. And so now we’re not dealing with that issue as we go forward.
Kevin Tracey
Okay. And in the last couple years your fourth quarter has been—it’s the best quarter of
the year. Is that something you expect to continue in 2014?
Michael Suksi
I’m optimistic that it will be.
Kevin Tracey
Okay. Good. And then a quick question on taxes. You haven’t paid any cash taxes this year,
and I think you still have some NOLs. I’m wondering how long do you think you all have not having
to pay taxes.
Paul O´Shea
13
FINAL TRANSCRIPT
November 6, 2014 — 11:00 a.m. E.T.
That’s—without giving guidance we will have used up—we are working through our losses
that we had from the amalgamation that we did January 1, 2014.
Kevin Tracey
Okay. And then just quickly if I could ask about the Canadian dollar. It’s declined quite
rapidly over the last couple months, and I’m wondering if that presents, I guess, any problems or
opportunities? I know you have at least a little bit of business in Chicago. Maybe if you could just
talk about that a little bit?
Michael Suksi
Yeah. It isn’t a big factor for us, and the reason is that on the one hand we have sales into
the US—as you point out, Chicago is one of those areas—and we’ve stated in our strategic plan that
it’s our intention to grow in the US, which by the way we have been doing. I didn’t touch on that in
my comments, but we continue to add business at a modest pace in the US, so we’re encouraged by
that.
But offsetting that we also buy a fair bit of our raw materials out of the US, so the two
factors tend to weigh each other out. Or offset each other is a better way to say.
Paul O’Shea
Yeah. We tend to have a natural hedge between the purchases and the profits we make in
the US.
Kevin Tracey
14
FINAL TRANSCRIPT
November 6, 2014 — 11:00 a.m. E.T.
Okay. All right. Well, thank you very much.
Michael Suksi
Thanks, Kevin.
Operator
The next question is from Robert Tattersall. Your line is open.
Robert Tattersall — Private Investor
Hi. Good morning, gentlemen. I’m a private investor in the convertible debentures, so I
was pretty pleased to see your year-to-date net income up around almost $3 million, and that left
me a little confused as to why shareholders’ equity was down almost 1 million. And I guess I tracked
it down, you have remeasurements of post-employment benefit obligations, I guess, and other
comprehensive income. And looking at this nine months compared to the nine months of the prior
period that’s an $11 million swing from a plus 6 million to a minus 5 million this period, but your
pension obligations in total on the balance sheet are only 11 million. So I’m a bit perplexed as to
what the dynamics are here, so perhaps the CFO can explain in nontechnical language?
Paul O’Shea
Yeah. It’s actually very simple. Last year we had an increase in the discount rate and
increase in interest rates…
Robert Tattersall
Mm-hmm.
15
FINAL TRANSCRIPT
November 6, 2014 — 11:00 a.m. E.T.
Paul O’Shea
Which bumped up the pension asset.
Robert Tattersall
Mm-hmm.
Paul O’Shea
And we moved from having a liability to an asset. And this is—I’m speaking strictly about
our legacy defined benefit plan…
Robert Tattersall
Yeah.
Paul O’Shea
And this year the interest rates have gone the other way…
Robert Tattersall
Mm-hmm.
Paul O’Shea
The discount rate has declined, which forces the liabilities to go up, which…
Robert Tattersall
Mm-hmm.
Paul O’Shea
16
FINAL TRANSCRIPT
November 6, 2014 — 11:00 a.m. E.T.
Decreases the value of our pension asset. And swings in interest rate discount can have
that type of impact on the defined benefit pension plan.
Robert Tattersall
Okay.
Paul O’Shea
So we won last year, and this year it’s going against us.
Robert Tattersall
Yeah. Okay. Fair enough. And quick unrelated question. Almost a year ago, late December
last year, KST Industries bought about 10.7 percent of your shares; at least they reported that for
investment purposes. And I’m wondering if those guys ever stop by and have coffee? Have they
ever contacted you? Do they show any interest in the ongoing business?
Michael Suksi
I would say most definitely. In fact, Robert, what you may not be aware of is that we
announced—was it two quarters ago I think, Paul? We previously announced that we’d made some
changes and refreshed our Board.
Robert Tattersall
Mm-hmm.
Michael Suksi
And as a result of that there is a representative from KST who is on our Board.
17
FINAL TRANSCRIPT
November 6, 2014 — 11:00 a.m. E.T.
Robert Tattersall
Oh okay. Well, thank you very much.
Michael Suksi
He was at the Company yesterday.
Robert Tattersall
Okay. That’s my questions. Thank you.
Michael Suksi
Thank you.
Operator
The next question is from Andy Krystal with Royal Capital Management.
Andy Krystal — Royal Capital Management
Hey. Good morning.
Michael Suksi
Good morning.
Andy Krystal
The results look encouraging. I was just wondering about the balance sheet. Do you have a
target for where you want to see your credit facility go down to?
Paul O’Shea
18
FINAL TRANSCRIPT
November 6, 2014 — 11:00 a.m. E.T.
We do, but I’m not going to give you a forward-looking statement on that, but yes we have
a definite target of where we want to get it down to. We have a…
Andy Krystal
Okay.
Paul O’Shea
In our forecast we have a plan in place.
Andy Krystal
Okay. Is there any way you’d be able to give some sort of EBITDA multiple or some sort of
multiple? Not just a—I know you don’t feel comfortable giving an exact number, but…
Paul O’Shea
No.
Andy Krystal
Okay. And then…
Paul O’Shea
I could give you this. Anywhere below 2…
Andy Krystal
Okay.
Paul O’Shea
On our senior debt, but of course we want to achieve far, far better than that.
19
FINAL TRANSCRIPT
November 6, 2014 — 11:00 a.m. E.T.
Andy Krystal
Okay. Sure. And then just on the debenture repurchases. Was there anything where you
weren’t allowed to purchase the debentures before you’re releasing results? Or…
Paul O’Shea
Yes. We were in a blackout period from the 15th of September.
Andy Krystal
Okay. Perfect. Okay. That answers my questions. Thanks so much.
Michael Suksi
Thank you.
Operator
Again, if you would like to ask a question, press *, 1.
The next question is from Rob Borda with Rob Borda Consulting.
Rob Borda — Rob Borda Consulting
Good morning, guys. How’s everybody today?
Michael Suksi
Terrific, Rob, how are you?
Rob Borda
20
FINAL TRANSCRIPT
November 6, 2014 — 11:00 a.m. E.T.
Fantastic; thanks for asking. Congratulations again on your successes to date and your
Transformation Plan. Just as an investor myself, what are the triggers or requirements for DATA
Group to meet before you would pay a dividend again?
Michael Suksi
Well, it’s a fair question, and it is something that we do consider. It’s not completely on
the backburner, but I think it will be fair to say that we need to see solid, sustained, positive results
against the various elements of our Transformational Plan, including growing EBITDA, revenue at a
modest growth rate, and debt reduction before we would be doing that.
So we’re very encouraged by the fact that we’ve had a very strong quarter, I believe, but
we need to see this sustained for a while before we’re looking at that.
Rob Borda
What would you be looking at? Three quarters? Four quarters? A year and half before you
would consider?
Michael Suksi
Yeah. I won’t quantify it. It would depend on a lot of factors; not just the number of
quarters, but how significant the results were in each quarter…
Rob Borda
Of course.
Michael Suksi
21
FINAL TRANSCRIPT
November 6, 2014 — 11:00 a.m. E.T.
How much debt was paid down, so I don’t think it would be appropriate to quantify it
specifically.
Rob Borda
Very good. Thank you very much.
Michael Suksi
Sure.
Operator
Next question is from Romeo D’Angela with Novadan.
Romeo D’Angela — Novaden
Hi, gentlemen. It’s Romeo D’Angela. Congratulations. I think it was a very good quarter
overall. Quick question; if you have a choice between paying down bank debt or buying back the
convertible debentures, you seem to have allocated more money to buying back—well, paying off
bank debt as opposed to buying back those debentures, which to me seem exceptionally cheap.
How do you make that decision?
Paul O’Shea
We’re in the market when we’re not in a blackout period. We’re just—we’re trying to buy
the debentures because we realized they’re at a good value right now…
Romeo D’Angela
Mm-hmm.
22
FINAL TRANSCRIPT
November 6, 2014 — 11:00 a.m. E.T.
Paul O’Shea
But we’re restricted as to how much we can buy per day. We can only buy up to $19,000
per day, so we’re in the market trying to buy them. But they’re not that easy to buy at this time, and
we’re restricted on the amounts we can buy.
Romeo D’Angela
Right. Okay. Fair enough. And I guess a philosophical question. Only as a purchaser of
other convertible debentures I’ve noticed that in some cases companies when they’re in any kind of
distress they will take the opportunity to make an offer or buy back the convertibles at significant
discounts to the market, or make an offer and do not sort of live up to the commitment of paying
par value for the debentures when it's time for maturity. Philosophically, unless the Company's in
distress, what's your view on doing that?
Michael Suksi
I'm not particularly comfortable giving a philosophical answer, Romeo, with all due
respect. Some companies have made decisions to do that, and those are their individual choices.
Romeo D’Angela
Right.
Michael Suksi
And I'm not going to comment on that.
Romeo D’Angela
23
FINAL TRANSCRIPT
November 6, 2014 — 11:00 a.m. E.T.
Okay. Fair enough. All right. Thank you.
Michael Suksi
Thanks for your questions.
Operator
There are no further questions at this time. I will turn the call back over to the presenters.
Michael Suksi
Well, thanks, Mike. Thanks again to everybody for joining us today. Thanks for the
questions we received, and we look forward to updating you on our progress at the end of fourth
quarter.
Have a good day. Thank you again.
Operator
This concludes today's conference call. You may now disconnect.
*****
24

final transcript - The Execution Engine For Business Communications

Transcription

Documents pareils

Transcript

RFP Template - Brookfield Real Estate Services Inc.